Model Tenancy Act – Overview
The Union Government recently passed the Model Tenancy Act, 2021, in an attempt to better regulate and introduce effective mechanisms in the rental housing market in India. The Act came at a vital point, after the coronavirus pandemic has created an uncertainty in the real estate and rental housing sectors. The report titled ‘2021: A New Era for Rental Real Estate in India’ highlights the high vacancy in urban residential houses. This was attributed to the weak rent control laws within States which discouraged owners from renting their houses. This can be rectified by the Act, as it intends to streamline the renting process. With the 2021 Act, the Government has envisaged the creation of a transparent infrastructure and improve the legal relations between landlord-tenant, requiring the signing of legal written contracts between the parties. It aims to erase the ambiguity in the pre-existing regime governing the renting sector. States can now enact a new rent legislation based on the provisions of the Model Tenancy Act, thereby effectively laying down some form of uniformity in legislations across State borders.
Notably, the Act specifies that it will be applicable prospectively, and therefore, leaves existing tenancies out of its scope. It also limits its application to properties for commercial, educational and residential use, excluding industrial properties from its purview. The Act creates a Rent authority, who must be informed of very written agreement between the landlord and tenant within 2 months of the date of the rent agreement. The Rent Authority is a part of the three-tiered grievance redressal system, the other two being the Rent Court and Rent Tribunal. Together, the three aim to provide a speedy resolution of rental disputes, as the same must be disposed within 60 days.
The landlord is also given certain rights, such as the requirement of her prior consent before subletting and before making any structural changes to the premises. Further, in the event of any alterations made by the landlord on the premises, the cost can be accounted for in the rent. Any alterations made by the tenant must be only done with prior written consent. The Rent Authority can be approached by the landlord for any ‘misuse of the premises’, which is defined to be public nuisance, damage, or its use for “immoral or illegal purposes”. The landlord is entitled to compensation in the event that the tenant fails to vacate the premises after the termination of the tenancy, and the Rent Authority is empowered to order for repossession by the landlord.
On the other hand, the landlord has also certain restrictions imposed within the Act. She cannot impede the flow of essential services such as water, electricity, lifts, etc. In case the same is restricted to the tenant, they can approach the Rent Authority who is empowered to pass an interim order to remedy the wrongful restriction by the landlord. The landlord also cannot arbitrarily evict the tenant except as provided in the Act. In the case of a force majeure event, the tenant is entitled to certain concessions and advantages such as a leniency of one month to vacate the premises during the termination period. Although the landlord is entitled to get a security deposit, such security deposit cannot exceed two months’ rent for residential property or six month’s rent for non-residential property. The Act also lays down in detail the responsibility of each party concerning specific repairs to the premises.
The Act is a positive step in addressing the housing crisis, particularly at this vulnerable stage during the coronavirus pandemic. It aims to strike a balance between the rights of the landlord and tenants, putting transparency and efficiency at the forefront. With the grievance redressal mechanism, the civil courts can be unburdened from the rising litigation related to the rental housing sector. An interesting aspect of the Act is that it also encourages the renting of properties by Non-Residential Indians, allowing for the reduction in vacant property in urban areas. The requirement of a written contract paves the way for lesser legal disputes and conflicts, as it is expected that this will allow for clear duties and rights to be set out within the contracts. Already, the Assamese state government has enacted a tenancy law based of the Model Tenancy Act. It is expected that other states will follow soon, enabling a robust framework to protect the rights of both landlord and tenant, a critical need as the rental housing sector recovers from the pandemic.